Taxes

Taxes in the United Kingdom

The UK tax system is relatively straightforward for employees (PAYE handles everything), but understanding the basics helps with financial planning.

Income Tax Rates 2025/26

Scotland has different rates (more bands, slightly different thresholds).

Important: The Personal Allowance is withdrawn £1 for every £2 earned over £100,000, creating an effective 60% tax rate between £100,000-£125,140.

National Insurance (NI)

Separate from income tax, NI funds state benefits:

Employees:

• 8% on earnings £12,571-£50,270
• 2% on earnings above £50,270

Employers pay:

• 15% on earnings above £5,000

Self-employed:

• 6% on profits £12,570-£50,270
• 2% on profits above £50,270

PAYE System

Most employees don't need to file a tax return. PAYE (Pay As You Earn) means:

• Tax calculated by employer
• Deducted automatically from salary
• National Insurance also deducted
• Tax code determines allowances

You get a tax code (e.g., 1257L) - check it's correct!

When You Need Self Assessment

File a tax return if you:

• Are self-employed
• Earn over £100,000
• Have significant investment income
• Have overseas income
• Are a company director
• Have untaxed income

Deadlines:

• Register by October 5 after tax year
• Paper return: October 31
• Online return: January 31
• Payment: January 31

For New Arrivals

Split-year treatment: If you arrive part-way through the tax year, you may only be taxed on UK income earned after arrival.

Remittance basis abolished (from April 2025): Most UK tax residents now taxed on worldwide income as it arises.

4-year Foreign Income and Gains (FIG) regime: New arrivals may qualify for reduced taxation on foreign income for first 4 years.

Tax-Efficient Accounts

US-UK Tax Treaty

For Americans: The US-UK tax treaty prevents double taxation. You'll likely need to file US taxes but can claim credits for UK taxes paid.